Keeping your financial records in good shape is one of the key responsibilities of running a business. But what is involved in bookkeeping and which bookkeeping software should you consider? We answer all this (and more) in our handy guide to bookkeeping.
What is bookkeeping?
Bookkeeping refers to the day-to-day recording of your company’s financial transactions. As we’ll cover, this includes everything from tracking sales and payments to recording receipts. This old English word dates back to the 17th century, where the job of a bookkeeper was to ‘keep account books’. Today, the principles remain the same, even if technology has transformed bookkeeping methods.
What’s involved in bookkeeping?
There are different ways you can do bookkeeping as a small business depending on how you operate.
If you’re self-employed – for example, as a sole trader or partner in a business partnership – you’ll need to keep a record of the following:
- your sales and income
- your business expenses
- your personal income
Additionally, you’ll need to keep VAT records if you’re VAT-registered, PAYE records if you hire staff, and any grants received, such as the Self-Employment Income Support Scheme (SEISS). You will need to complete a Self-Assessment tax return using this information.
If you’re a limited company director, your bookkeeping responsibilities are more extensive. You’ll have the keep the same records as a self-employed person, but also retain information such as:
- records about the company (e.g. details about the directors and shareholder votes)
- information about assets owned by the company
- other accounting records, like stock the company owns, and any debts
As a limited company director you’ll need to complete not just a Self-Assessment tax return, but a Company Tax Return too, as you’ll be liable for Corporation Tax.
You can of course hire an accountant to help you pay your tax, but you will still need to learn how to do bookkeeping, or employ a bookkeeper, so that an accountant can submit accurate records to HMRC.
What does a bookkeeper do?
Whether you do the bookkeeping yourself, or get someone to do it for you, it’s good to know exactly what’s involved in bookkeeping.
- Track transactions – a bookkeeper must keep on top of your cash flow in case the business needs more money to operate.
- Sending invoices – once work has been completed, sending out an invoice is one of the basics of bookkeeping.
- Chasing payments – getting paid on time and claiming interest for late payments is something a bookkeeper can do.
- Managing payroll – bookkeepers can make sure that your staff (and HMRC) get paid.
- Prepare the books – an accountant will need up-to-date figures for completing tax returns, so a bookkeeper will need to provide accurate financial records.
Single versus double entry bookkeeping
Few people know how to do bookkeeping without doing a little research. So to clear things up, let’s take a look at two bookkeeping methods.
Double entry bookkeeping
There are two sides to every transaction, and double entry bookkeeping is a way of reflecting that. A sale, for example, means that you suddenly have a lower inventory, so you can record this in two entries. Or you may take out a loan, which means that you acquire a debt, so again, you can input two numbers in your records. This is what is meant by double entry bookkeeping.
Single entry bookkeeping
As you may have guessed, single entry bookkeeping simply means that you record every transaction as a single entry in a cash book. In addition to the value – which can reflect income or an expense – a bookkeeper may wish to include a date and description of the transaction.
Is single or double entry bookkeeping better for your business? If you’re a small startup company and you have a low volume of transactions, single entry bookkeeping may suit your needs. But if you’re a medium or large-sized company, double entry bookkeeping gives a more comprehensive overview of a company’s finances, which can help if you’re looking to impress investors.
How long do I need to keep my records?
If you’re self-employed (a sole trader, or a partner in a business partnership), you’ll need to keep your bookkeeping records for at least five years following the 31st January deadline of the tax year in question. If you run a limited company, you’ll need to keep records for six years following the end of the last company financial year. In some cases you’ll need to retain your records for a longer period – for example, if you file a late Company Tax Return. Find out more about keeping records here.
What is the best bookkeeping software?
If you’re a small business with simple bookkeeping needs, you may be happy enough to do single entry bookkeeping on a program like Microsoft Excel. Alternatively, you can pay for a subscription to bookkeeping software like FreeAgent, QuickBooks or Xero if you require a more advanced solution. And of course, you can view your Tyl sales, payments and invoices through the Tyl portal. (Fees Apply)
Where can I find a bookkeeper?
If you’re not sure how to do your own bookkeeping, or simply don’t have the time, you can always contact the Institute of Certified Bookkeepers (ICB), which has a directory of qualified members who are insured and licensed bookkeepers. Otherwise, you may be able to find a bookkeeper online through local Facebook pages, forums, or simply word of mouth.
How Tyl can help with your number crunching
For more support on managing your company’s finances, you can read our guides on: